REIV Pricing Ploy Relies On Lies
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd
We now have the REIV inventing, and forcing its own legislation on real estate consumers. When will journalists, regulators, lawyers and consumers start thinking for themselves instead of simply watching Enzo Raimondo and the crew at the Real Estate Institute of Victoria (REIV) make fools of them. It's time to put vendors and purchaser back in control, and to return the real estate agent to the role of salesperson.
In an article in the Sunday Age, Chris Vedelago reports, "Estate agents who use misleading prices in advertisements will be punished under a promised crackdown by the Real Estate Institute of Victoria." (The Sunday Age 25 October, 2009 p.5). According to the article,
"The REIV board has voted to ban member agents from using controversial "price plus" advertising practices (for example, $500,000-plus), which industry regulators have long regarded as misleading to home buyers.
A new code of conduct will require all REIV members to advertise and quote properties for sale using only a single price figure, a price range or no price.
The ban is expected to cover more than a dozen other misleading pricing terms such as "in excess of", "opening bid", "offers from" and "expect over".
'[This will be a positive for consumers and give some clarity and some consistency in the way that property prices are advertised,' Mr Raimondo said.
...Consumer Affairs Victoria issued similar, but voluntary, price guidelines about two years ago, although they have been routinely ignored by the industry."
How is it that Consumer Affairs Victoria can be "routinely ignored" while the REIV can introduce, and enforce its own new "laws"?
The answer is in the long standing tradition of real estate agents, the real estate industry, and REIV to tell lies. It is only through its ability to tell lies, and have those lies readily accepted by all and sundry, that the REIV will be able to maintain its role as lawmaker and enforcer. The REIV also relies heavily on journalists and other real estate industry participants to promote and comment favourably on the role of the REIV in "regulating" the industry.
Exposing the REIV's Lies
The REIV cannot enforce its new rules unless it advises its members to tell lies to vendors.
We can expect that real estate agents will falsely tell vendors that it is not permissible for a vendor to advertise sale prices in certain ways. But what if a vendor stands up to the real estate agent, and refuses to accept the false REIV propaganda.
For example, imagine a conversation between a real estate agent and an informed vendor:
Vendor: "I want you to advertise the price of my property as '$500,000+'".
Estate agent: "You can't advertise the price like that, it's against the REIV rules."
Vendor: "The REIV doesn't tell me what to do, and neither do you. You'll advertise my property as I say, do you understand?"
Estate agent: "But the REIV will fine me if I break its rules."
Vendor: "Well you tell the REIV that I'm the boss, I determine what my advertising says, and if Enzo Raimondo has a problem with that he can talk to me about it."
Unfortunately, real estate consumers are rarely informed consumers by the time the real estate agent has finished with them. The average vendor will be lied to and deceived, not only by the real estate agent, but also by those who rely on the real estate industry for their own continuing existence - the property journalists who write for property investment magazines and property sections of newspapers, the "pet" lawyers and conveyancers who rely on referrals from their real estate agent buddies, and the regulators who have to put positive spin on their failure to rectify the rotten system over which they preside.
Returning Responsibility To The Vendor
It never dawns on anyone that the vendor is supposed to be the person in control of price advertising. A vendor is entitled to insist in whatever form of price advertising he or she sees fit. If a vendor requires legal advice as to their legal position regarding price advertising, they should get this advice from a qualified lawyer (certainly not from the real estate agent or from the REIV).
Ask any any vendor how they would like to advertise the price of the property, and what will be the response? The response will probably be, "I don't know". Vendors have been taught by the industry, industry commentators, and industry regulators that price advertising is a matter for the real estate agent and the REIV, and that real estate agents have some form of expertise in this regard. In fact, all of the trouble, the lies, the deceit and misery that has arisen over the pricing of real estate starts and finishes with the real estate agent.
In the absence of lies and misinformation delivered by the real estate agent, the average vendor would be quite happy to obtain a formal written valuation, and to invite offers based on the valuation. If competing offers take the sale price to a figure that is well beyond the valuation figure, so be it.
It is time to return control of pricing the to the vendor.
The first step is to stop real estate agents from controlling vendors and prices - by banning them from offering "appraisals". Real estate agent appraisals are the means by which real estate agents have corrupted what is really a relationship between vendors and purchasers, and have made it a relationship of dependence by both parties on the real estate agent.
Recently the Estate Agents Board called for submissions regarding on Modernising The Estate Agents Act 1980. In my submission I referred to the overreach of the real estate agent, and suggested that estate agents be prevented from assuming roles beyond their capacity, with a focus on appraisals.
The submission can be accessed by clicking on the following link: Modernising The Estate Agents Act 1980 - Submission to the Estate Agents Council.
Returning Responsibility To The Purchaser
The maxim caveat emptor applies to the condition of home, and purchaser who fails to obtain a building inspection report before buying is expected to carry the risk of incurring expense if problems are discovered after the sale. A purchaser has a number of choices when buying an old home:
- Buy it, "as is" and accept the risk that there may be something wrong with it;
- Buy it "subject to building inspection", and risk having to cancel the contract if problems are discovered;
- Pay for a building inspection before the sale, and accept the risk that someone else may pay more for the property.
Each of these options carry the risk of costs thrown away, or of problems materialising post-sale. And yet, selecting between these options is regarded as a normal part of purchasing real estate. It's known as "due diligence"
However, when it comes to determining the price of real estate, due diligence is replaced with an almost child-like reliance on the advertised price (as determined by the commission-driven and self-interested real estate agent). If a purchaser attends an auction, or submits an offer, and later discovers that the vendor has accepted a price that is way beyond the advertised price, the purchaser feels entitled to whinge and whine about "under-quoting".
Had the purchaser undertaken a little due diligence, perhaps by investing in a valuation, and relied upon their own research, they would have known from the outset that the property was going to sell for more than $500,000 because its current market value was objectively assessed at $600,000.
Ignorance - The Real Estate Agent's Source Of Strength
When neither the vendor nor the purchaser know the current market value of the property under the consideration, the real estate agent is able to take full control.
However, when both the vendor and the purchaser have access to an objective property valuation, and they are able to determine, on an objective basis, the final sale price, the real estate agent reverts to his/her proper role - that of servant to the parties.
A vendor who has obtained an formal valuation is unlikely to accept fanciful figures presented by the real estate agent, and is more likely to determine the asking price on a reasonable and objective basis. Similarly, a purchaser who knows the current market value of a property is able to determine how much above market value he or she is prepared to pay in order to secure the property they want (this is where emotion has a genuine role in real estate sales).
The sale becomes a transaction that actually involves the parties, with each party taking responsibility for, and ownership of, the outcome.
Removing The Incentive To Lie
If the real estate agent is prevented from interfering with prices, and vendors are required to make their own decisions based on advice from appropriate experts (i.e. valuers and legal advisers at the option of the vendor), the incentive to lie and deceive will disappear.
Vendors will take care in determining their asking prices, and will be more likely to undertake proper and reliable research before setting a price. We may even see a return to the advertising of actual asking prices.
Similarly, purchasers will be more inclined to determine whether a property is likely to sell for the advertised price. With the fading of estate agent driven price-lies, purchasers will not be confronted with the problem they have now.
Conclusion
The nonsense associated with real estate pricing is the direct result of the involvement of real estate agents in the valuing/pricing process.
The REIV, with its self-styled legislation and sanctions aimed at real estate agents, deliberately perpetuates the lie that real estate agents have a greater role in, and responsibility for, the pricing of real estate than the vendors and purchasers who instruct them.
The problem can be eliminated quickly and simply by recognising that the real estate agent is a commission-driven salesperson, and not an adviser. If the real estate agent is removed from the pricing process, and vendors and purchasers are once again required to take responsibility for their roles, the incentive for lying and deceiving will be removed from the real estate pricing process.
As to whether regulators and real estate industry stakeholders will have the mettle to grasp the nettle remains to be seen.
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